Weekly review: bulls and bears in a pitched battle at the moment
WEEKLY MARKET REPORT
There is a massive division of opinion about the share market at the moment, which leaves investors in one of two diametrically opposed camps.
One camp, which seems to have the upper hand at the moment, is that the COVID-19 crisis will be a bit of a sharp downturn followed by a rapid recovery.
That means that you can “look through’’ the dramatically weaker results that will be rolling in for the next few months and instead focus on the rapid comeback to come afterwards.
Falls could be a buying opportunity
On that measure, the dramatic falls that happened from February’s market peak are a fantastic buying opportunity – one that is rapidly disappearing now that the market has quickly bounced out of a rapid-fire bear market and into a surprisingly fast bull market.
The second camp, which is yet to establish the upper hand, thinks that the initial share market plunge did not go far enough and the subsequent rally is a classic bear trap that will end in tears.
Could the rally be a giant bear trap?
By this view the COVID-19 economic and business damage will be significant and long lasting, and is starting to be shown in figures such as China’s alarming 9.8% economic contraction in the March quarter.
That, in turn, will eventually see shares resume their downward path, potentially to around half of where they were when February’s record was set.
If you simply look at what is happening on the Australian share market at the moment, camp one is firmly in control, with Friday’s strong gains of 1.3% or 71.2 points on the ASX 200 to close at 5487.5 points.
That rise means the market was up 1.9% for the week and has now risen for four weeks in a row – 24.7% up from the low of 4,546 points struck on March 23.
Aviation and real estate stocks bounce back
Even more significant were the sorts of stocks that were driving the recovery – including aviation stocks that rallied on the back of news that the Federal Government would cover the cost of Qantas and Virgin Australia maintaining a limited domestic schedule.
Qantas (ASX: QAN) shares rallied an impressive 7.2% to $3.72 and Sydney Airports (ASX: SYD) jumped 8.3% to $6.28.
Property stocks were also running hard, including Stockland (ASX: SGP) which was up an impressive 8.5% to $3.05.
These were amongst the hardest hit stocks in the initial plunge so their rises show that investors are really “looking through’’ the crisis and anticipating better times ahead.
They are also shopping for bargains, with some of the more obvious stocks having already recovered somewhat from their previous plunge.
Plenty of bad news to come
Of course, there is every chance that camp two could be right and as a welter of bad profit and economic news continues to come out of the crisis and the delicate task of reopening the economy starts, the resurgent market could be susceptible to further falls.
Even if camp one is correct in the long run, the strong gains prompted by US President Donald Trump’s plan to restart the US economy could still leave share prices vulnerable to any short-term bad news.
One significant player in camp two is billionaire hedge fund player Paul Singer.
A newsletter from his Elliott Management predicts that global stocks could tumble to just half of their value from February’s high as the world enters the deepest recession since the Great Depression era of the 1930’s.
“Our gut tells us that a 50% or deeper decline from the February top might be the ultimate path of global stock markets,” said the influential Elliott.
Small cap stock action
The Small Ords index rose a healthy 4.22% this week to close on 2350.3 points.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
Predictive Discovery (ASX: PDI)
West Africa focused Predictive Discovery intercepted near-surface gold in 23 out of 24 holes drilled at its Kaninko project in Guinea.
Drilling identified a shallow, wide, north-trending zone extending at least 450m long, with mineralisation open in all directions.
Better results from drilling were 46m at 6.58g/t gold from 4m, including 10m at 26.52g/t gold; 42m at 2.92g/t gold from 8m; and 50m at 1.53g/t gold, including 20m at 2.51g/t gold.
These intercepts all ended in mineralisation and were only drilled to a maximum depth of 50m.
Predictive followed up Wednesday’s results with assays from the Ferkessedougou North gold project in Cote D’Ivoire on Thursday.
These results were from a nine-hole diamond drilling program totalling 1,659.19m at the Ouarigue South prospect.
Highlight results from this program were 51m at 1.27g/t gold from 169m, 14m at 10.74g/t gold from 33m, and 33m at 1.62g/t gold from 28m.
1st Group (ASX: 1ST)
1st Group has launched its Telehealthclinics.com.au directory and telehealth solution as part of a global push to provide remote telehealth services to combat exposure and spread of COVID-19.
The company said the launch of its integrated clinically validated telehealth solution resulted from customer requests and recently introduced government legislation enabling telehealth consultations to be bulk billed under Medicare.
“1st Group’s telehealth service allows our customers to use an end-to-end encrypted telehealth service that is fully integrated with our platforms and our customers’ practice management systems, simplifying the experience for our customers and their patients,” 1st Group managing director and co-founder Klaus Bartosch said.
With more than 2 million face-to-face health appointments carried out prior to COVID-19, 1st Group noted it was “difficult to predict” the number of telehealth consults during the pandemic and also once it subsides.
However, the company said it believes growing familiarity with this style of consult will make it a more accepted and popular method for all consults across the country.
Chalice Gold Mines (ASX: CHN)
Drilling at Chalice Gold Mines’ Julimar project north-east of Perth in Western Australia has uncovered a high-grade palladium-nickel-copper zone.
The company now has assays for the first 80m of JRC006, which was drilled about 60m east of a maiden discovery hole.
Assays revealed 41m at 2.6g/t palladium, 0.4g/t platinum, 0.5% nickel, 0.4% copper and 0.03% cobalt from 39m, including 31m at 3.3g/t palladium, 0.5g/t platinum, 0.7% nickel, 0.5% copper and 0.04% cobalt from 40m.
Chalice managing director Alex Dorsch said the results highlighted the project’s potential to deliver a large-scale discovery.
“While the broad palladium intervals point to a large-scale [platinum group elements] discovery, our focus remains on defining high-grade zones of mineralisation which, according to the geological analogues such as Jinchuan in China and Kabanga in Tanzania, could be found at depth below the disseminated sulphide zones,” he added.
The company is well-positioned to continue exploration despite the challenging market conditions, with reverse circulation and diamond rigs continuing to drill high priority targets.
Impression Healthcare (ASX: IHL)
Medicinal cannabis company Impression Healthcare has combined cannabidiol (CBD) and a historical malaria treatment called hydroxychloroquine to create a therapeutic drug called IHL-675A for treating sepsis-associated acute respiratory syndrome (ARDS).
In severe COVID-19 cases, this condition is a leading cause of death, and Impression claims there is a “major unmet clinical need” in this space, with current treatments comprising mechanical ventilation and oxygen.
To fast-track the drug’s development, Impression has engaged a specialist pharmaceutical research organisation to carry out pre-clinical tests on animals.
Impression believes IHL-675A has potential to reduce acute pulmonary inflammatory response, reverse pulmonary oedema and limit lung damage in severe COVID-19 sufferers.
The drug combines the potent anti-inflammatory agents found in CBD with hydroxychloroquine, which is an immunomodulatory molecule that interferes with pro-inflammatory signalling and has an anti-viral effect.
Hydroxychloroquine also has a long history of use in preventing and treating malaria, rheumatoid arthritis and other autoimmune diseases.
If IHL-675A’s effectiveness can be established in animal studies, Impression will apply for FDA Emergency Use Authorisation for using the drug in treating COVID-19 symptoms.
Alt Resources (ASX: ARS)
Gold explorer Alt Resources is powering ahead with its Mt Ida and Bottle Creek project in WA, revealing high-grade gold assays and lodging a stage one mine plan for the Tim’s Find deposit within the project.
On Thursday, Alt unveiled assays from exploration drilling at the project’s Southwark, Pianto’s Find and Single Fin prospects.
Better results were 7m at 3.83 grams per tonne gold from 32m, including 1m at 18.5g/t gold; 25m at 1.85g/t gold from 60m, including 1m at 11.30g/t gold and 1m at 9.21g/t gold; and 8m at 2.92g/t gold from 78m, including 1m at 16.75g/t gold.
The positive drill results followed the company’s announcement it had lodged the stage one mine plan for Tim’s Find where it hopes to be mining before the end of the September quarter.
Tim’s Find lies on an existing mining lease and has resources of 770,600t at 1.94g/t gold for 48,400oz.
Alt expects to release a maiden reserve and pre-feasibility study for the project before the end of the current quarter.
MGC Pharma (ASX: MXC)
MGC Pharma will begin a phase II clinical trial this month – investigating the efficacy and safety of Micelle Technology’s natural anti-infective drug ArtemiC on COVID-19 patients.
Micelle developed the drug which comprises its MyCell delivery technology and artemisinin and curcumin along with vitamin C and boswellia serrata – all known for possessing natural anti-infective properties.
Under a deal announced earlier this week, MGC will be responsible for carrying out the trial which will involve 50 COVID-19 sufferers and is expected to finish in September, with results due a month later.
If this and possible subsequent trials are successful and lead to commercialisation, MGC is charged with packaging and distributing the final product at its EU compliant factory in Slovenia.
Micelle has had successful results in previous tests evaluating the drug in people with infectious disease and acute illness including malaria.
ASX floats this week
Small Caps readers who want to view upcoming IPOs or see the performance of stocks that have listed in 2020 can now do so.
The latest company to make its way onto the ASX this week was:
Atomo Diagnostics (ASX: AT1)
Atomo Diagnostics is one the only IPO to float on the ASX in recent weeks due to the impact of the current COVID-19 pandemic.
The company successfully raised $30 million in its IPO via the issue of 150 million shares at $0.20 each.
Atomo’s proprietary blood test devices are currently being used to test for COVID-19 and prior to its ASX debut, Atomo revealed it had received a second purchase order to supply a further 550,000 devices from French company NG Biotech.
The second order brings NG’s total purchases of the rapid diagnostic test devices to 947,200.
Atomo’s test devices have CE Mark approvals for use in Europe and NG has the commercial rights to sell the units in France and the UK including France’s Ministry of Defence.
The company rocketed on its first day of trade and ended the week on a high at $0.52 – up 160% on its offer price.
The week ahead
In the lead up to Anzac Day on April 25, the Reserve Bank will be the focus of investors, with Governor Philip Lowe delivering an important speech on the economy after the release of minutes of the April 7 Board meeting on Tuesday.
Other than the Reserve’s comments, there is a raft of other data which will show how COVID-19 is impacting measures such as wages, consumer sentiment, household spending intentions, skilled job vacancies, and international trade.
Internationally, the US is where most of the action is with statistics released on home sales, home prices, mortgage applications, jobless claims, manufacturing and consumer confidence.